Beijing Comes to the Aid of Madrid

On a visit to Spain, a minister of the Chinese government promises that his country will purchase more bonds representing Spanish public debt. This message is also directed toward the United States.

The vice prime minister of China, Li Keqiang, announced yesterday, during an official visit to Madrid, that his country is prepared to "purchase more" bonds issued by the Spanish state, amounting to about 10% of those in circulation. The Chinese leader yesterday also set out on a tour that will take him also to Germany and to the UK. In the Spanish capital, he met with the head of government, José Luis Zapatero.

This voyage testifies to the lively interest of Chinese leaders in European affairs. With the present crisis in the Euro zone, they have sent repeated signals to Greece and Portugal, making public their massive purchases of the public debt in those countries. During the recent China-Europe summit, the Chinese president in person repeated his offers of cooperation. "We are ready to aid the countries of the Euro zone to surmount the financial crisis and to succeed in their economic recovery," declared the Chinese government in mid-December.

These operations have several objectives. In investing the enormous cash reserves they have earned, thanks to their favorable balance of trade, the Chinese authorities diversify a portfolio far too concentrated on treasury bonds issued by the US central bank. "In the future, Europe will be one of our principal markets for the investment of our exchange reserves," they announced. These purchases take place, moreover, under favorable conditions of remuneration, because the interest rates on refinancing imposed on European countries by the financial markets are very high. In the face of international investors, notably the speculators of Wall Street, Beijing reaffirms its presence.

The game is played on several terrains. It should be reviewed in the context of the war of currencies that set the dollar, the euro, and the yuan against one another. What is more, and in parallel with this visit, another Beijing representative, the minister of foreign affairs, was in Washington on Tuesday to prepare the visit of the Chinese president on 19 January. The US administration is pressuring China to revalue its currency, so as to aid in finding a new equilibrium in commercial exchanges between the two countries. Beijing is thus trying to loosen this constraint by finding allies in Europe. The Chinese purchases of European debt will perhaps not solve the problems of the Europeans, but they are the sign of a desire for cooperation that would be dangerous to ignore.